Guidant results hit by product recalls

Following its recent approval of Boston Scientific's (Natick, Massachusetts, US) offer and merger agreement, Guidant (Indianapolis, Indiana, US) has reported its fourth-quarter and full-year results for 2005.

The Boston deal will see the company acquire all the outstanding shares of Guidant for $42 cash and $38 in Boston Scientific common stock per Guidant share (approximately $27bn in aggregate), and result in Guidant's vascular intervention and endovascular businesses being divested to Abbott Laboratories (Illinois, US), for which Boston will receive around $6.4bn.

Its fourth-quarter sales totalled $828m, representing a $140m, or 14%, drop on the 2004 figure, which the company put down to the $26m pre-tax expenses incurred through product recalls and safety warnings on almost 300,000 heart defibrillators and pacemakers. Full-year sales totalled $3.55bn, representing a $125m, or 6%, drop.

Worldwide implantable defibrillator sales decreased by 19% to $372m for the quarter and by 6% to $1.65bn for the year, while US sales fell by 23% to $272m for the quarter and 12% to $1.23bn for the year.

Worldwide pacemaker sales fell 24% to $134m for the quarter and 13% to $629m for the year, while US sales fell 29% to $70m for the quarter and 19% to $346m for the year.

Worldwide coronary stent sales declined 6% to $117m for the quarter and 14% to $462m for the year, while US sales rose 3% to $64m for the quarter but dropped 5% to $247m for the year.

On the plus side, worldwide sales of cardiac surgery and peripheral, including carotid and biliary systems, increased 28% to $373m for the year, helping to cause a $921m increase in net cash for the year, which rose to $2.5bn.

Furthermore the company's gross margin showed improvement for the quarter, moving from 76% in the same period in 2004 to 77.3%, 'primarily due to positive manufacturing variances from inventory builds supporting the re-launch of certain implantable defibrillators', but fell to 73.8% from 75.5% for the year, 'primarily due to the impact of net charges resulting from the 2005 product recalls and field actions'.

Income and earnings per share for the quarter fell by 31% and 34% respectively to $85m and $0.25; and for the year fell 23% and 25% respectively to $444m and $1.33.

The company has reaffirmed its previously disclosed 2006 sales guidance of $3.8 - 4.0bn.

Since announcing its results the company has received the Conformite Europeene (CE) Mark for its XIENCE V Everolimus Eluting Coronary Stent System, allowing it to begin marketing for the stent in the EU.

However, Boston Scientific has been issued with US Food and Drug Administration (FDA) warnings over 'serious regulatory problems involving..medical devices' at three of its facilities: Natick, Massachusetts; Maple Grove, Minnesota and Spencer, Indiana. The facilities are used to manufacture Vaxcel, Enteryx, and Taxus Paclitaxel drug eluting stents and the company's Leveen Needle Electrode product.

The FDA warning letter states that: 'The devices manufactured at these sites are adulterated under section 501(h) of the Act, in that the methods used in, or the facilities or controls used for, the manufacture, packing, storage or installation are not in conformance with the Current Good Manufacturing Practice (CGMP) requirements for medical devices.'

Boston was told that its corporate-wide corrective action plan relating to prior warnings issued in May and August of 2005 was inadequate. It will meet the FDA this week to discuss the issues raised.